At the meeting of the Steering committee for the restructuring of credit institutions (CIs) taking place in the afternoon of July 27, prime minister Nguyen Xuan Phuc said that the biggest test for the credit system was Covid-19 pandemic.
“In the last six months, credit system not only has been sustained, but also has had quick and timely participation in the country’s stable economic development, contributing to the positive growth of Vietnam,” the prime minister emphasized.
This is partly due to the health of the system of CIs which has improved significantly after three years of drastically implementing Project 1058 on restructuring the system of CIs associated with bad debt handling in period of 2016-2020. The prime minister shared that the system of CIs had changed quite positively in financial scale, credit quality, restructuring and system security. Communist party, State and people feel more secure. A number of important indicators have been significantly improved such as total assets, equity, and bad debt ratio.
Indeed, by the end of March 2020, the total assets of the system of CIs reached nearly 12.5 quadrillion dong, an increase of nearly 3.4 quadrillion dong (equivalent to 37.4%) compared to the end of June 2017 before Decision 1058 issued. Also, in this period, the equity of the system of CIs increased by 376 trillion dong to 1.06 quadrillion dong, equivalent to an increase of 55%; charter capital of the system rose from 117 trillion dong to nearly 617.5 trillion dong, equivalent to an increase of 23.5%.
Especially, the system of CIs handled 557 trillion dong of bad debts, of which CIs handled over 76 percent of their own, bringing the Non-Performing Loan (NPL) ratio to 1.63%, being only 4.43 percent if including bad debts sold to Vietnam Assets Management Company (VAMC) and potential bad debts, sharply reduced from 10.08 percent compared to three years ago. In addition, divestments of non-core businesses and cross-ownership and cross-investment handling have been actively implemented, earning up to 2.2 trillion dong. The situation of manipulation by majority shareholders was basically overcome.
“Nearly the whole system of CIs has been revised and consolidated. In particular, state-owned commercial banks continued to play an important role, in which total assets accounted for 42.8 percent and loans accounted for 47.9 percent of the whole system. Non-bank CIs, people’s credit funds, microfinance institutions have been restructured, operated healthily, restricted shadow banking”, prime minister recognised.
However, the process of bad debt handling of the system of CIs faces many obstacles due to the Covid-19 pandemic when the epidemic caused companies to delay the production and business activities, thereby affecting the debt repayment and cash flow of people and businesses.
The second quarter financial statements of banks also clearly showed that when NPLs tended to increase, leading to higher credit loss provision. For instance, in the first six months, bad debts of Tien Phong Commercial Joint Stock Bank (TPBank) increased by 241 billion dong to nearly 1.477 trillion dong; NPL ratio also grew from 1.29 percent at the end of 2019 to 1.47%. Even banks with good operating quality such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) could not escape from impact of Covid-19 outbreak when the bad debt ratio increased from 0.79 percent at the end of 2019 to 0.83 percent at the end of last quarter.
The results of a survey on business trends conducted by the Statistical Forecasting Department (The State Bank of Vietnam SBV) recently also recorded two consecutive quarters of CIs saying the business situation of the whole system decreased uhile overall risk level of customer groups, business and financial conditions of customers, and demand of the economy for banking services declined sharply, putting pressure on credit loss provision. This expected situation would greatly affect the income and profit before tax of the banking system in 2020.
Remembering the report at the government’s online conference with localities on April 10, SBV said that if the epidemic was controlled in the first quarter, the bad debt ratio in the balance sheet was sold to VAMC and classified debts would be at 1.9 3.2 percent at the end of the second quarter and 2.6 3 percent at the end of 2020. If the epidemic was controlled in the second quarter, this rate would increase to 4 percent and 3.7 percent respectively at the end of the second quarter and the end of this year. “Even, the bad debts rate could be higher, affecting the progress of restructuring, handling of banks and the ability to recover weak banks.
Now the Covid-19 epidemic becomes more complex due to dozens of new cases in the community. Many localities had to re-apply the prevention measures. It also means that production and business activities of enterprises will continue to be difficult, resulting in the process of bad debts handling of banks also facing many obstacles. That is a big challenge when the system of CIs is still actively solving difficulties for the business community to promote economic growth. In the words of prime minister Nguyen Xuan Phuc, “we also need to carry out a very specific dual task, which is dealing with bad debts, and support effectively to promote socio-economic recovery at the same time “.
